Scarcity

Resources of all kinds are scarce. That simply means that we do not have enough resources to produce all of the goods and services that anybody might like to have. It means that we, as a society, must somehow answer some basic questions: What resources will be used to produce which goods and services. To answer these questions, and get the resources to the users, is to "allocate" resources. We would, of course, like to organize things so that the resources are used for the most urgent and rewarding kinds of production --that is, we would like to allocate resources "efficiently."

In the Soviet Union, under the system of economic planning, the allocation of resources was pretty obvious -- the government decided who got to use which resources. The government "allocated resources" in a way that anyone would recognize. (They don't seem to have done it very efficiently, though). Notice, however, that markets also allocate resources. This allocation is not as obvious -- it goes on while we are not looking, so to say -- so we don't always think of it as allocation. But it is allocation of resources, since the bidding and higgling and haggling and deal-making of the market-place does determine which resources are used for what purposes.

A Model of Scarcity